PHASES OF ACCOUNTING – “JOURNAL”
7.7 IMPORTANT POINT TO NOTE AT THE ITEM OF RECORDING A TRANSACTION
known as Compound Journal Entry. Make sure that the amount in the debit column equals to the amount in the credit column, based on the double entry system of book-keeping. One amount in the debit column must be equal to two or more amounts in the credit column or one amount in the credit column equals to two or more amounts in the debit column or under compound entry, a few debits will be equal to a few credits. The rule for journalizing is the same as that of simple journal.
7.7 IMPORTANT POINT TO NOTE AT THE ITEM OF RECORDING A TRANSACTION
In this lesson, we attempt to make a brief survey the main points to be remembered.
1. When money is paid for expenses like rent, salary etc., the concerned expenses accounts should be debited. The persons who received the money should not be debited.
2. Purchases, sales etc., if names of supplier or customer are given, should be assumed to be on credit basis even if not specifically mentioned so.
3. Any expenses incurred while acquiring fixed assets like machinery, buildings etc., should be added to the asset cost.
4. Compound entry: A Particular transaction may affect more than tow accounts Debits or credits of both may be more than one account. However, the total debit should be equal to the total credit.
5. Trade discount is to be reduced from the ‘list price of sales or purchases and entry should b e written for net amount only.
6. Goods accounts: The articles or products in which a firm deals are termed as ‘goods’ for that firm. Purchases A/c, purchase returns A/c and sales returns A/c are all different types of goods accounts and thus ‘Real accounts’ by nature.
7. Purchases A/c is meant for purchase of goods only. It should not be used for purchase of assets like machinery or for purchase of stationery, etc.,
8. Sales A/c is concerned with sales of goods only. It should not be used in case of sale of assets.
9. Owner’s transactions: When owner provides money to the business, it is capital. Capital account is credited. If owner withdraws money or anything else like goods, it is drawings.
Drawings account is debited.
10. Payments for owner: Payments made on owner’s behalf for Income tax, Insurance premium, purchase of assets for his personal use etc., should be treated as drawings.
11. Abnormal losses of goods: Loss by fire, loss by theft or pilferage etc., of goods should be treated as abnormal losses and credited to Trading a/c, after debiting the respective loss accounts.
12. Goods utilised: Goods purchased for the purpose of sales may be used for other purposes.
If the owner takes goods, drawings A/c is debited and purchases A/c is credited; if goods are distributed as ‘samples’, advertising account is debited and purchases a/c is credited.
If goods are given as charity, charity A/c (loss) is debited and purchases A/c is credited.
13. Cancellation of discount allowed: Cheque may e received from a customer and he is allowed discount. If the cheque is dishonoured, the discount allowed also should be cancelled by crediting discount allowed A/c.
Check your Progress 2
List the important stages in the accounting cycle.
Note: a) Write your answer in the space given below.
b) Check your answer with the ones given at end of this lesson (pp. 64 ) ………..
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7.8 ILLUSTRATIONS
In this section, we worked out some modal problems for you, to learn how to pass journal entries for business transaction.
Illustration1.
Journalise the following transactions in the books of Shankar & Co.
1998 Rs.
June 1 Started business with a capital of 60,000
June 2 Paid into bank 30,000
June 4 Purchased goods from Kamal on credit 10,000
June 6 Paid to Shiram 4,920
June 6 Discount allowed by him 80
June 8 Cash Sales 20,000
June 12 Sold to Hameed 5,000
June 15 Purchased goods from Bharat on credit 7,500
June 18 Paid Salaries 4,000
In the books of Shankar & Co.
Date Particulars L.F. Dr.
(being Cash paid into bank)
June 4 Purchases A/c 10,000 ((being Cash paid to Shriram)
June 8 Cash A/c Dr. 20,000
To Sales A/c 20,000
((being Cash sales effected)
June 12 Hameed’s A/c Dr. 5,000
To Sales A/c 5,000
(being Goods sold to Hameed)
June 15 Purchases A/c Dr. 7,500
To Prem’s A/c 3,000 ((being Cash received from
Prem)
June 25 Cash A/c Dr. 5,000
To Bank A/c 5,000
(being Withdrawn from bank )
June 28 Drawings A/c Dr. 1,000
To Cash A/c 1,000
(being Withdrawn for personal use )
June 30 Hanif’s A/c Dr. 3,000
To Bank A/c 3,000
(being Paid to Hanif by cheques) Illusration-2
Journalise the following transactions:
1998
June 1 Purchased goods worth Rs.300 from Vimal and Rs.500 from Kamal on credit.
June 3 Sale of goods worth Rs.1,000 to Balram and Rs.700 to Dhanram.
June 5 Cash of Rs.900 received from Ramasamy and Rs.800 from Krishnasmy.
June 7 Paid Rs.800 to Pradeep and Rs.500 to kuldeep.
June 9 Withdrawn from bank Rs.600 for office use and Rs.300 for personal use.
Solution:
Journal
Date Particulars L.F. Dr.
Rs.
Cr.
Rs.
1998
June 1 Purchases A/c Dr. 800
To Vimal’s A/ c 300
To Kamal’s A/c 500
((being Purchased goods worth Rs.300 from Vimal and Rs.500 from Kamal on credit
June 3 Balram’s A/c Dr. 1,000
Dhanram A/c Dr. 700
To Sales A/c 1,700
((being Sales of goods worth Rs.1,000 to Balram and Rs.700 to Dhanram)
June 5 Cash A/c Dr. 1,700
To Ramasamy’s A/c 900
To Krishnasamy’s A/c 800
((being Cash of Rs.900 received from Ramasamy and Rs.800 from
Krishnasamy)
June 7 Pradeep’s A/c Dr. 800
Kuldeep’s A/c Dr. 500
To Cash A/c 1,300
((being Paid Rs.800 to Pradeep and Rs.500 to Kuldeep
June 9 Cash A/c Dr. 600
Drawings A/c Dr. 300
To Bank A/c 900
((being Withdrawn from bank Rs.600 for office use and Rs.300 for personal use)
Illustration - 3
Journalise the following transactions, 1998
June 1 Karthik commenced business with Rs.20,000.
June 2 Paid into bank Rs.5,000 from Anwar.
June 3 Purchased Plant worth Rs.10,000 from Modi & Co.
June 4 Purchased goods worth Rs. 5,000 form Anwar.
June 6 Goods worth Rs.4,000 sold to Anbu June 8 Sold goods worth Rs.2,000 for cash.
June 10 Goods returned by Anbu Rs.50.
June 15 Paid rent Rs.250.
June 18 Withdrawn from bank for office use Rs. 2,500.
June 20 Paid Salaries Rs.1,800.
June 25 Withdrawn for persona use Rs.250.
June 26 Goods returned to Anwar Rs.100.
June 27 Paid for office furniture Rs.1,500 by cheque.
June 28 Received Rs.3,900 cash from Anbu and discount allowed Rs.50.
June 29 Paid Answer on account Rs.4,800 and discount allowed by him Rs.100.
((being Capital brought into the business )
Dr 20,000
(being Plant purchased from Modi & Co.)
Dr 10,000
((being Goods purchased from Anwar)
Dr 5,000
5,000
June
((being Withdrawn from bank for office use)
Dr 2,500
((being Payment of Rs.1,800 as salaries)
Dr 1,800
((being Payment by cheque for office furniture)
Dr 1,500
((being Cash of Rs.3,900 received from Anbu and discount allowed Rs.50)
((being Cash of Rs.4,800 paid to Answar and discount allowed by him Rs.100)
1. Recording of business transactions is usually done in journal or subsidiary books.
2. Along with the entry in the journal, a complete explanation is written, so that, later it would be possible to understand the entry properly.
3. Ledger folio column is not used at the time of recording of transaction.
4. To write correct journal entry we must check up the following things what aspects are affected?, what class of accounts are they? And which account is to be debited and which one to be credited?
7.10 LESSON-END ACTIVITIES